Federal Court Backs Illinois Restaurants in Credit Card Fee Fight


CHICAGO, IL (StLouisRestaurantReview) A federal judge has ruled in favor of Illinois restaurants in a closely watched dispute over credit card swipe fees, potentially reshaping how processing costs are calculated on restaurant transactions.


Key Points:

Illinois may prohibit interchange fees on sales tax and gratuity portions of credit card transactions


Restaurants could see measurable savings beginning July 1, 2026


Banking groups are expected to appeal the decision

A decision issued by the U.S. District Court for the Northern District of Illinois clears the way for the state’s Interchange Fee Prohibition Act to move forward. The law prevents payment networks from charging interchange fees on money restaurants collect for government taxes and employee tips.


For an industry operating on thin margins, the ruling could represent meaningful financial relief.

What the Law Changes for Restaurants


Under current credit card processing structures, interchange fees are typically calculated on the full transaction total — including:

Food and beverage charges


Sales tax


Gratuities

The Illinois law narrows that calculation base. If implemented as scheduled, interchange fees would apply only to the actual cost of the meal and beverages, not the tax portion owed to the state or the gratuities left for staff.


For full-service restaurants where tips often represent 15–25 percent of the bill, the difference could be significant over thousands of monthly transactions.

Why This Matters to Restaurant Operators


Credit card fees are one of the fastest-growing expense categories in hospitality. As more customers shift to card and digital payments, restaurants have seen processing costs steadily increase.


Operators argue that charging fees on tax and tip amounts effectively penalizes businesses for money that never becomes revenue.


For example:

Sales tax is collected on behalf of the state


Tips are passed directly to employees


Yet both amounts have traditionally been included when calculating interchange fees

Removing those components from the calculation could reduce total processing costs without requiring restaurants to increase menu prices or implement customer surcharges.

Industry Reaction


Restaurant industry advocates welcomed the ruling, calling it a major step toward fairer fee structures.


One industry representative described the decision as “a meaningful win for restaurants that have struggled with rising transaction costs,” adding that it provides “a clear path for states seeking to address swipe fee burdens.”


The decision is already drawing national attention, as other states are expected to examine similar legislative options.

What Happens Next


The interchange fee restriction is scheduled to take effect on July 1, 2026, unless further court action delays implementation.


Financial institutions and card networks are widely expected to appeal the decision. If that occurs, the issue could move to higher courts before reaching final resolution.


Payment processors may need to adjust their systems to separate base sale amounts from tax and gratuity totals when calculating fees.

What This Means for St. Louis Restaurants


Although the ruling directly applies to Illinois, its impact may be felt across the bi-state St. Louis region.


Many restaurants operate near the Missouri–Illinois border or serve customers from both states. If Illinois restaurants gain a cost advantage through lower processing fees, Missouri lawmakers could face pressure to consider similar measures.


For St. Louis restaurant owners, this development is worth monitoring for several reasons:

Potential competitive pricing differences across state lines


Future legislative discussions in Missouri


Possible contract renegotiations with merchant processors

Operators should review their merchant statements to understand how interchange fees are currently calculated and how similar reforms could affect their cost structure.

The Larger Swipe Fee Debate


Interchange fees have long been controversial in the hospitality sector. While debit card fee caps exist under federal law, credit card interchange fees remain largely market-driven.


Restaurants argue that rising swipe fees reduce profitability and limit their ability to absorb inflation in food, labor, and utilities.


Card networks maintain that interchange fees support transaction security, fraud prevention, and payment infrastructure investments.


The Illinois ruling does not eliminate interchange fees. Instead, it changes how the fee base is calculated — a targeted adjustment rather than a complete overhaul of the system.

What Restaurant Owners Should Watch


St. Louis operators should monitor:

Appeal developments


Guidance from payment processors


Legislative discussions in Missouri


Merchant agreement adjustments

With digital payments now dominant in the restaurant industry, any shift in processing fee structures could have lasting implications for profitability.


For now, Illinois restaurants are preparing for a potential reduction in swipe fee exposure later this year — a move many believe could ease financial pressure during a challenging economic period for hospitality businesses.


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